AP Poll: More using federal income tax refunds to pay bills, reduce debt

ALAN FRAM

Published 7:00 pm, Wednesday, April 9, 2008

Associated Press Writer

That nice annual tax refund from Uncle Sam isn't a luxury anymore for growing numbers of people. Instead, it's increasingly going right out the door to pay bills.

In the latest illustration of how the economic slowdown is hitting home, more than a third, or 35 percent, said they are using the money to pay utility, credit card or other bills, an Associated Press-AOL Money & Finance poll showed Thursday. A year ago, 27 percent said they were using it that way.

About a third said they are saving or investing the money, down slightly from last year. Nearly a quarter said they are using their refund to pay debt from credit cards and other loans _ essentially the same as the one in five who said so a year ago.

Among those using their Internal Revenue Service check for necessities is Ricky Martinez, an unemployed construction worker from Waco, Texas. He said his refund was about $600, far smaller than last year's, and he has already used it to pay rent and other bills in advance because of his uncertain job prospects.

"It's just been hard for me to find a job," Martinez, 29, said in a follow-up interview. In past years when his IRS refund was larger, he saved it in hopes of buying a house, he said.

That's not to say some people aren't enjoying their checks. One in five is spending it _ an increase from last year _ on everything from everyday needs to shopping sprees and vacations.

"We're using it to pay off bills and to travel, one of our top priorities," said Daryle Lynn Cornelison, 61, a retired school administrator from Laguna Beach, Calif.

The average tax refund so far this year has been $2,464, up slightly from a year ago, according to the IRS.

Separately, the government will soon begin sending special tax rebates to millions of Americans in hopes they will spend the money and spur economic growth. Those checks will be up to $600 per person and are on top of the refunds.

In the poll, 56 percent said they have received or expect a refund this year, a significant drop from 66 percent a year ago.

There have been no tax law changes that would reduce the number of people getting refunds. Analysts could point to no specific reason for the lowered expectations, other than suggesting it might reflect the general gloom the public feels about anything related to the listless economy.

According to IRS figures, refunds have been sent to 80 percent of those who filed returns through March 29, down from 85 percent of those who filed during the same period last year. David R. Williams, IRS director of electronic tax administration, said in the end the proportion getting refunds this year should be the same as last year.

"A significant number of people who responded to your poll may in fact be pleasantly surprised," he said.

Even so, analysts said if fewer people think they're getting a refund, it might make them less likely to spend money _ which would hinder economic recovery.

Fifty-nine percent said they were filing their taxes electronically, up slightly from a year ago, led by higher-earning and all but the oldest taxpayers. Those still using mail tended to be older, lower-income and single.

Nearly eight in 10 said they think filing electronically is secure _ a small drop from a year ago, perhaps due to public attention to lost government laptops holding data and other mishaps. This week, a federal inspector general's report said the number of fraudulent tax returns using stolen identities has multiplied sixfold in recent years.

"It's just easier," said Terry Harris, 49, an electronic filer from Wiley, Colo. "I have family who have worked for the Post Office, and I'm constantly amazed when I get mail."

The poll also found:

_Almost one in five saying they spent 10 or more hours on their taxes. They tended to be middle-aged and more affluent.

_63 percent using professional tax preparers, up from last year. Nearly a quarter said they were using software programs on their own, little changed. Nine percent _ down from 15 percent _ were filling out paper forms by hand, largely older people.

_85 percent of those who owe taxes said they would probably not use credit cards to pay, which involves an additional fee.

_Nearly nine in 10 said they are organized in keeping tax records, a group dominated by women, older people, the highest earners and Republicans.

The AP-AOL Money & Finance poll was conducted from March 24-April 3 by Abt SRBI Inc. It involved telephone interviews with 1,002 adults nationwide, including 863 who said they were involved in filing their household's tax returns. It had a margin of sampling error of plus or minus 3.1 percentage points for all adults, 3.3 percent for those responsible for filing taxes.